Staffordshire ceramics firm Portmeirion has slipped into the red after battling a "very challenging retail environment" and a fall in the value of the dollar.

The company, which employs 560 people in Stoke, reported a 2.9 per cent drop in sales in the year to December 31 to £27.6 million.

Meanwhile the company saw a £2 million profit in 2003 become a loss of £398,000 last year, a dent triggered by the impact of the US dollar fluctuations.

A strong performance in the US, where the new PS Portmeirion Studio range has proved a resounding success, was undermined by the weakness of the dollar.

The 17 per cent increase in sales was reduced to 6.6 per cent when converted back into sterling.

Overall, if group sales had been compared on a like for like exchange rate, sales in 2004 would have been 0.5 per cent greater than the previous year. Margins in the UK came under pressure during the year, as the company struggled to maintain sales.

Some 1.5 per cent of margin had to be sacrificed to maintain the level of sales which fell 1.7 per cent during the year.

Last November the company announced plans to reduce its warehouse and manufacturing facilities from four to two.

Chairman Arthur Ralley said good progress had been made on consolidating the smaller manufacturing site into the larger premises.

He said the reorganisation, which will mean around ten redundancies, would help improve productivity.

He added that the company was now looking to launch new products this year as well as target greater exports, with China and Russia in particular.

"About 60 per cent of business is currently exports and I think we can do more in Europe. We have just appointed distributors in China, and we are there for the long term. But I think we can do more in Europe as well."

He added: "I expect 2005 to be a year of radical repositioning of the company which will result in less dependence on UK ceramic manufacturing in the future.

"Sales so far in 2005 are slightly below the same period in 2004 and I think it is unrealistic to expect significant sales growth this year given the challenging environment we face.

"With improved efficiencies and tight cost control I do believe the group can bring about a significant improvement in performance.

"With new, targeted product ranges and the bulk of the reorganisation completed I expect significant progress from 2006 onwards."